Kimco Realty Corporation — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited results. Kimco is a REIT focused on owning and operating open-air, generally grocery-anchored shopping centers and mixed-use properties. At quarter-end, it had interests in 526 U.S. shopping centers totaling 90.8 million square feet, plus 24 other property interests. Results compared with 2021 are affected by the August 2021 Weingarten merger and are not fully comparable.
Financial performance
Dollar amounts below are in millions unless otherwise noted.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $433.4 | $368.6 | $1,287.9 | $939.9 |
| Operating income | $144.3 | $76.3 | $420.8 | $298.5 |
| Net income available to common shareholders | $51.6 | $501.4 | $156.8 | $743.3 |
| Diluted GAAP earnings per share | $0.08 | $0.91 | $0.25 | $1.56 |
| FFO available to common shareholders, diluted per share | $0.41 | $0.32 | $1.20 | $0.99 |
| Same-property NOI | $318.3 | $308.7 | $950.7 | $905.4 |
- Revenue growth reflected acquired properties, including Weingarten, as well as leasing activity and growth in the existing portfolio. Rental-property revenue increased 17.7% in Q3 and 37.2% for the nine-month period.
- Same-property NOI increased 3.1% in Q3 and 5.0% for the nine months. Management attributed improvement mainly to leasing and reduced pandemic-related abatements and vacancies, partly offset by changes in tenant credit losses.
- Calculated GAAP operating margin was approximately 33.3% in Q3 2022 versus 20.7% in Q3 2021, and 32.7% versus 31.8% for the nine-month periods. These margins include depreciation and other operating expenses.
- GAAP net income and EPS fell sharply against 2021, primarily because marketable-security results swung from gains of $457.1 million in Q3 2021 and $542.5 million for the first nine months of 2021 to losses of $75.5 million and $215.2 million, respectively, in 2022. The filing attributes these mark-to-market changes mainly to Kimco’s Albertsons shares. FFO, which excludes marketable-security mark-to-market changes, increased.
- Nine-month operating cash flow was $705.8 million, up from $417.3 million. Investing activities used $219.6 million; financing activities used $697.3 million. Cash, cash equivalents and restricted cash ended at $123.5 million, down from $334.7 million at year-end 2021.
Balance sheet, debt and liquidity
- At September 30, 2022, total assets were $17.92 billion and total liabilities were $8.06 billion. Notes payable were $6.91 billion and mortgages payable were $300.7 million, for total reported debt of about $7.21 billion, down from about $7.48 billion at December 31, 2021.
- Cash and cash equivalents were $120.3 million; marketable securities were $999.1 million. The marketable-securities balance is exposed to share-price movements and should not be treated as cash-equivalent liquidity.
- Kimco had a $2.0 billion revolving credit facility, with $128.0 million drawn and $1.2 million allocated to letters of credit. It matures in March 2024, with two six-month extension options. The reported facility rate was 3.85% at quarter-end; the facility can be increased to $2.75 billion through an accordion feature.
- Management reported compliance with debt covenants. Credit-facility covenant measures included indebtedness to gross asset value of 38% against a maximum of 60%, and fixed-charge coverage of 4.1x against a minimum of 1.50x. Consolidated floating-rate debt was $146.6 million; a 1% increase in short-term rates would have increased nine-month interest expense by an estimated $1.1 million.
- Nine-month interest expense was $165.9 million, up $19.2 million year over year, mainly reflecting debt assumed in the merger and public debt issuance, partly offset by repayments. Interest paid was $186.2 million.
Material changes, outlook and risks
- Debt refinancing: Kimco issued $600 million of 3.20% notes due 2032 and $650 million of 4.60% notes due 2033, and repaid four note issues totaling approximately $1.45 billion. Early repayment of $500 million of 3.40% notes resulted in $7.2 million of charges, including financing-cost write-offs.
- Property investment and dispositions: The company acquired operating properties and parcels for $135.8 million during the first nine months, spent $128.6 million on property improvements, and sold eight properties and ten parcels for an aggregate sales price of $172.2 million. It recorded $21.8 million of property impairment charges, primarily based on proposed sale prices below carrying values. Management said it recorded no impairments during the period specifically attributed to economic conditions or COVID-19.
- Spending expectations: Kimco anticipated spending approximately $130 million to $160 million on operating-property acquisitions and $50 million to $75 million on redevelopment and re-tenanting for the remainder of 2022. These are management estimates, not guaranteed outcomes.
- Dividends: The Q3 common dividend was $0.22 per share. After quarter-end, the board declared a $0.23 quarterly dividend, a 4.5% increase, payable in December 2022. Kimco also expected a possible special dividend following Albertsons’ announced special cash dividend; the company had not determined the amount or whether it would be paid in cash, stock, or a combination.
- Albertsons investment: At quarter-end Kimco held 39.8 million Albertsons shares valued at $990.4 million. After the announced Kroger–Albertsons merger, Kimco sold 11.5 million shares in October for approximately $301.1 million and retained 28.3 million shares; 28.0 million were subject to lock-up through May 2023. The anticipated Albertsons special dividend to Kimco was estimated at $194.1 million.
- Risks and contingencies: Management cited inflation, rising interest rates, supply-chain and labor issues, slower growth or recession, tenant credit and leasing risks, COVID-19, financing conditions, and valuation or impairment risk. These factors could pressure tenant demand, rents, operating costs, asset values, and financing. The company had $44.2 million of letters of credit, $18.5 million of performance and surety bonds, and $27.5 million of investment funding commitments, of which $13.1 million had been funded. It also guaranteed potential debt-service shortfalls on $49.7 million of Sheridan, Colorado tax-increment bonds; required debt service had been met by project revenues to date.
- Kimco reported no material changes to its previously disclosed risk factors, no litigation expected by management to have a material adverse effect, and effective disclosure controls. Hurricane Ian caused no significant property damage.
Important facts for investors to verify
- How much of reported revenue and cash-flow growth reflects Weingarten and other acquisitions versus same-property operating improvement; also review leasing, occupancy and tenant credit trends.
- Performance and valuation of the Albertsons stake, including the effect of the Kroger transaction, share lock-ups, the special cash dividend, and any resulting Kimco special distribution.
- Debt refinancing costs and future interest expense as rates change, including maturities, revolver availability, and covenant headroom.
- Execution and returns on planned acquisitions, redevelopment spending, and re-tenanting, alongside the $21.8 million of impairments and any further asset sales.
- Whether operating cash flow supports regular dividends and planned investment, while accounting for REIT distribution requirements and the possible special dividend.
FFO and same-property NOI are non-GAAP supplemental measures; they are not substitutes for GAAP earnings or operating cash flow.